Insolvency and Bankruptcy Code
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This article is written by Ankit Rao.


Even a cursory glance at the economic landscape before the arrival of the IBC indicates the dire need for legislation like the IBC, and its enactment has been a boon not only for corporations but for creditors as well. However, the utility and effectiveness of this act depend in part on its ability to avoid being overridden by other laws that may come in conflict with it and being binding over the relevant entities, which should include governmental bodies as well. The legislators of this law had the foresight to give it this necessary power and authority, by including a non-obstante clause.

However, this supremacy which was envisioned by the legislators has not been able to materialize as effectively as one might have thought, and subsequent court cases have delivered contradictory judgments regarding the supremacy of the law. This article takes a detailed look at the intricacies and contradictions of these cases to shed some light on the predicament that arises from this ambiguity, and in the process also highlights the urgent need for clarification from the legislature regarding the contested supremacy of the law to provide some coherence and clarity once and for all.

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India being a developing nation is experiencing an upward trend in the category of corporate debtors. With more and more companies falling victim to liquidation every week & in current times of ever-changing dimensions of economy, the corporate world plays a fundamental role in maintaining a viable economy. The insolvency laws play a key role in countries’ overall development. India enacted fresh legislation and reforms which bolstered support in helping the country secure the position of top ten improvers in ease of doing business index. The World Bank commented that one of the main reasons for India’s significant increase in ranking is the implementation of the Insolvency and Bankruptcy Code, 2016.

The IBC was enacted on 11th May 2016 to create a course for creditors who sought relief against defaulting borrowers. IBC seeks to revive financial institutions, restructure their debts & ensure maximization of their assets values. It seeks to lessen the distress of the corporate debtors & make fewer companies go into insolvency by initiating cultural and behavioral changes. When companies are declared bankrupt overnight, the company is not the only one that goes down. All the stakeholders that are invested in the company get affected by it & one of the major stakeholders is the financial creditor whose funding ensures the survival of the company, so their interest also had to be protected.   

Section 238 of the IBC specifies that the legislation shall be in addition to, and not in derogation of the provisions of any other law currently in force.

To comprehend the overriding clause in IBC, it is necessary to look into the rationale behind the insertion of the specified provision. Insolvency & Bankruptcy Code was enacted because of the dire need to deal with the growing number of liquidations & after deep analysis by the Bankruptcy law reform committee.

The bankruptcy law reform committee while analyzing various aspects of the concerned law briefly stated the following about conflict of the IBC with other statutes in its report dated 4 November 2015.  

From the standpoint of the Constitution, a parliamentary law on insolvency and bankruptcy has the power to override any other laws on this matter. First, some specified categories of secured creditors and tax authorities have been dispensed with special powers under laws in force. Second, it should also be acknowledged that the figure of special tribunals established under different acts is on a rapid rise. The adjudicatory authority under the Code needs to have vital jurisdiction to deal with the conflicts that may arise due to this. 

In practicality, it is not possible for the legislature to give an exhaustive list of laws & enactments that might conflict with the IBC in advance. The drafters of the IBC envisioned for the legislation to be interpreted & evolve successively through the court’s interpretations and decisions as it is not possible for them to foresee all conflicts that may arise of IBC with the provision of other acts. To ensure that the purpose of the Act is not compromised, legislators included a non-obstante clause that carries an overriding power over any legislation is in contravention with the IBC. 

To ensure that the Code fulfills its true purpose the non-obstante was inserted in the Code because if the powers of the Code in comparison with other laws are limited whenever in conflict with any other Act, it wouldn’t have been able to progress. The Code was introduced because of the immense backlog of cases of bankruptcy. Furthermore, bankruptcy was harmful and not in the interest of development of companies so the IBC was introduced so as to preserve their interest. In order to ensure that the Code fulfills its required purpose, it had to be ensured that it is provided with the means to fight. For this reason, the Code was dispensed with adequate power to ensure that government bodies do not overpower it, & hence governmental bodies came under the umbrella that was bound by this Code. 

It is undeniably clear that the overarching features & powers of this Code should not be encroached upon by other laws, but if in case such encroachment does occur the supremacy of the Code should not be hindered. 

Binding nature of the IBC with respect to governmental authorities

Ultra tech Nathdwara Cements Ltd. vs Union of India & Ors. 

Rajasthan High Court in its order dating April, 2020 stated that an approved resolution plan under the IBC is obligatory on all the people, and governmental authorities are no exception. The court nullified the notice that sought the payment of excise duty and services tax issued by the Goods and Service tax department to Ultra tech Nathdwa Cement Limited, for the timeline before it actually took over M/s. Bina Cements Limited.


The case in question here basically revolves around the bankruptcy proceedings initiated by the Bank of Baroda against M/s. Bina Cements Limited (“Company”) which suffered huge losses & thereafter was unable to fulfill its debt obligations. Bank of Baroda lent a loan to the abovementioned company & when it came to know about the financial incapacity of the company, the bank approached NCLT to file an insolvency proceeding under section 7 of the IBC, 2016. In order to save the dying company, Ultra Tech Nathdwa Cement Ltd. (“petitioner”) approached Coc intending to take over the company & acted as a resolution applicant. 

After taking into consideration all the prospect resolutions introduced by various parties, the Committees of Creditors(“CoC”) concluded that the resolution plan brought by the petitioner was most suited to fulfill the purpose of IBC inserted in the preamble of the Code that is the maximization of the value of assets. The resolution recommended by the petitioner fairly protected the interest of all the stakeholders and recovery to the bank was much higher than what they would have recovered had the company gone into liquidation. The proposed resolution plan dispensed dues of all the creditors in a balancing manner without any discrimination whatsoever. 

The resolution professional aggregated & verified all the debt claimed by different creditors & reserved a total sum of 72.85 crores for payment of excise duty & service tax to the Central Goods and Service Tax Department. 

While performing his duties resolution professional also analyzed that the liquidation value of Binani Cement was set at Rs. 23,000/- which was far less than its outstanding debt. It is noteworthy that according to the available comparative analysis on record, had the company gone into liquidation, the operational creditors wouldn’t have had any opportunity for recovery, since their shares in the liquidated assets had been assessed as nil in this particular case & so it was held that the resolution plan submitted by the plaintiff was the only viable option. 

The CoC unanimously approved the plan submitted by the petitioner & thereafter while considering the resolution plan, NCLT duly approved the proportion payments to be made per the plan by the plaintiff to all respective creditors. 

Thereafter the decision was challenged by the Bank of Baroda (being the financial creditor) in the NCLAT & the Appellate Tribunal by its order upheld the order given by NCLT. Furthermore, Bank of Baroda again challenged the said decision under the jurisdiction of the Supreme Court. When the final seal of the Supreme Court was granted the whole process was finally set in motion & the petitioner took over the management & operations of the company. Hereinafter petitioner after the Supreme Court judgment renamed the company as M/s. Ultra Tech Nathdwara Cement Limited. The resolution plan was fully executed & the payments were duly allotted to the respective creditors without any hindrance or delay. 

Despite the aforementioned facts of this case, the respondent put forward multiple goods and service tax demands on the petitioner between the period of April 2012 to June 2017, including payment of interest up to July 25, 2017. The Tax department issued notices for the timeline before the petitioner acquired the said company i.e. M/s Binani Cements Ltd. Since the petitioner had already made full & final payment & abided by the terms of the resolution plan, the petitioner forwarded a letter to the respondent notifying it of the payment by the petitioner of all the dues, as admitted by the CIRP, restating that all the outstanding claims and proceedings stand dissolved. The letter forwarded by the plaintiff was to convey to the respondent that all the legal responsibilities towards the claim have been fulfilled & the plaintiff stand discharged of any liability whatsoever. 

However, seeing that no affirmative response was delivered by the respondent, the petitioner filed a writ petition under Article 226 of the Indian constitution seeking immediate quashing of demand notices issued by the Tax Department for the payment of excise duty. 

To be on a safer side the petitioner also requested an order to prevent the respondent from bringing any malicious & coercive suit on the same subject matter i.e any further suits concerning dues incurred prior to the date of purchase, which is when the petitioner had taken over the company. 


  1. Whether an approved resolution plan under the IBC has to be abided by the statutory authorities even though they were not privy to the whole resolution process & their opinion wasn’t taken into consideration. 
  2. Whether if any debt is owed to the Central Government or State government as a payment under any statute can initiate a claim for such payment even after the resolution plan is sanctioned by the adjudicatory authority. 

Petitioner’s submission

Learned counsel representing the petitioner insisted that IBC is a special law that was created to put an end to the helpless situation of companies liquidating & reducing wastage of assets. Certain companies have the potential to reach great heights but their progress is hindered because of the early death of the enterprise due to liquidation & bankruptcy.   

The petitioner argued that the resolution plan submitted by the resolution applicant is final once it attains approval by the CoC, and hence it is binding on everyone & cannot be questioned in the court of law.

It was further tendered that the financial creditors are given precedence & in the scheme prepared statutory and operational creditors are obligated to be the ones who sacrifice. It was further asked to be brought into light that the approved plan has already been affirmed by NCLAT & thereafter also by the Supreme Court & hence respondent has no jurisdiction to raise demands from the petitioner for a timeline prior to the date on which the petitioner took over. 

Petitioner also pointed out that the amended Section 31 clearly states that the approved resolution plan is binding on the corporate debtor, its employees, members, and & all creditors including Central Government, State Government or any local authority to whom dues arising under any law for the time being in force is owed. It was also brought within the notice of the Court that when the amendment was discussed in the parliament, certain questions were put up regarding the same by opposition parties & Hon’ble finance minister while answering the query put up elucidated that government will not make any further claim once the resolution plan is approved.  The message conveyed by the finance minister was that the amendment related to section 31of the IBC was implemented with the intention of lending assurance to the resolution applicant & other people of interest that the government will accept the resolution plan which carries the seal of adjudicatory authority as any action besides this will defeat the purpose of IBC.

The Hon’ble Court was further to observe & take into consideration the statements put forward in the SLP filed by the Tax Department before the Apex Court. Petitioner furthermore highlighted that the resolution plan was approved when conflicted & contended before NCLAT & that the adjudicatory authority restricted the respondent’s claim at 72.85 and appeal against such restrictions was rejected by the Supreme Court. 

The petitioner also drew the Court’s attention to the averments made in the SLP filed by the respondent before the honorable Supreme Court & it was highlighted that the judgments of the NCLAT approving the resolution plan wherein the respondent’s claim was curtailed & restricted at 72.85 crores was specifically challenged by the Respondent and the same was rejected by the Supreme Court. 

Petitioner also took the help of a certain judicial precedent to point the course of direction in its favor like the supreme court judgment of Essar Steel & contended that the resolution plan is binding on all parties, whether or not they had been heard by the resolution professional or the CoC, has been laid down to rest in the abovementioned case. 

Respondent’s submission

The prime argument put forward by the respondent was that it was not provided an opportunity of being heard before finalization of the resolution plan, it’s opinion was not taken into consideration & it didn’t have the right to the audience to put forward its contentions either & therefore it was not bound by the order. It further contended that the mere summary rejection of the SLP by the court would not act as a bar on the authority from raising its valid demands against successful resolution applicants.

Observation of Rajasthan High Court

The Court took note of section 31 of the IBC & highlighted the binding force of the resolution plan over government & other statutory bodies. With section 31, all the governmental & local authoritative bodies were made bound by the resolution plan once it receives the assent of the adjudicatory body. 

The intent behind the inception of IBC should also be taken into account, which was to safeguard the corporate sector where a large number of enterprises were vanishing into a liquidated state & so IBC came into the picture to put a stop on such rapid liquidation. Immediately after the approval of adjudicatory authority, the offer put up by the resolution applicant carries a binding force with it on all authorities towards whom the enterprise might be having payment dues. 

It is known that operational creditors unlike financial creditors do not carry any right to the audience in the resolution process & they are not privy to the resolution process. The Hon’ble finance minister of India in response to questions raised by the opposition party in the Upper house of Parliament has already settled that the government will be willing to let go of its financial interest in the distressed enterprise if that helps in recovering the enterprise. The finance minister thereby left the final interest of the government in the dying industry in the hands of Resolution professional and the CoC.  

Rajasthan High Court referred to the case of Committee of Creditors of Essar Steel Indian Limited through Authorise Signatory v Satish Kumar Gupta & Others,

Wherein Supreme Court stressed on Section 31(1) & highlighted that it makes it explicitly obvious that once a resolution plan is ratified by the CoC it shall carry mandatory force on all the stakeholders, including guarantors & such obligation cannot be escaped by means. 

This provision was considered necessary to ensure that the resolution applicant can continue business on a fresh slate without any previous claims being imposed on him thereafter. Here is a certain excerpt from the judgment:

Successful resolution applicant cannot suddenly be faced with ‘undecided’ claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by prospective resolution applicant who successfully takes over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor.”

The Rajasthan High Court held that after duly assessing the Supreme Court judgment statement put forth by the Finance minister, it is obvious that out of the two creditors, financial creditors are the ones who are accorded precedence in payments of the debt due over operational creditor. It was also established that the operational creditors are not privy to corporate resolution proceedings.  

The basic reason for which the IBC Code was brought into existence was to revive the dying industry by offering a prospect to the resolution applicant to take over the dying & debt-ridden enterprise & begin over on a clean slate. 

In the resolution process, in order to make the most out of the available assets & to ensure that no asset is wasted, all the assets are transferred and brought under the control of a resolution professional. The resolution professional further analyzed all the assets and liabilities to figure out the kind of situation the company has gotten into & to assess plans to revive the company out of the distressed state. When an insolvency application is filed against a company that is looked into & verified, thereafter only two possible solutions exist, the initial one is to liquidate the company & out of the leftover assets conduct repayment to the creditors & other being revival. In this specific case, respondents will be at the advantage of the revival of the company because in this case an amount of 72 crores is secured solely for the respondent whereas in case of liquidation due to the respondent as per the assessed liquidity value will be assessed as nill. 


Rajasthan High Court disposed of the said petition & held that if the respondent continues the same course of action it would be acting illegally and arbitrarily. The Court stated that respondents have no standing as the resolution plan is finalized & the terms are binding on everyone including the respondent & so no further demands can be raised by the respondent. 

Court held that the notices issued by the respondent did not carry any legal weightage & was in direct violation of the resolution plan decided by Coc and thereafter approved by the adjudicatory body & such notices cannot be sustained & therefore were quashed. Although, High Court in the said case adjudicated & held that a resolution plan once asserted by the Coc will carry supremacy force that all the parties will have to abide by & even governmental departments to whom statutory due is owed are brought under such umbrella. However, this view is not reciprocated & shared by all the Courts. 

Contradicting High Court opinions

Jharkhand High Court in Electrosteel Steels Limited v. State of Jharkhand held that a resolution plan although decided by the adjudicating body in favor of a resolution applicant, but the information about such proceedings was not introduced to the concerned governmental stakeholders, would be against the terms of section 31 of the IBC which states the approved resolution plan would be binding only on those stakeholders that were involved in the resolution plan. 


The aspects of the judgments depend can be clearly understood by discussing different observations made by the court.

  • Indirect Tax, not operational tax

It was disputed as to whether VAT is operational debt or not. The tax department claimed that the petitioner had already taken the said amount from the customers which the department seek. Authority stated that since the tax has already been collected by the petitioner it is under an obligation to transfer the collected amount & the said amount becomes debt the moment it is taken by the Petitioner. The court stated that it is not direct tax & it cannot be said to be operational debt. 

  • Amendment to the Act: whether prospective or retrospective:

With the introduction, the of IBC (Amendment) Act, 2019, the approved resolution plan was made binding on the governmental authorities concerning the statutory dues from 16.08.2019. An amendment is said to have pa a retrospective effect if in case of absence of a clear intention of the legislature. The plan of the petitioner was approved on 17.04.2018 & the said amendment cannot apply to the petitioner company with retrospective effect. 

  • CIRP not brought within the knowledge of Commercial Tax Authority & the State of Jharkhand 

The court observed that it is not inclined to entertain the writ petition even though there exists an approved resolution plan favoring the petitioner, but the said resolution plan was not brought into the notice of Commercial Tax Authorities & State Jharkhand. It was stated that adequate steps weren’t taken to publicize the Corporate Insolvency Resolution process organized in the State of Jharkhand. It was contended that the State was not made privy to the proceedings of the corporate resolution process & thereby State cannot be held to abide by the terms decided herein. The resolution plan decided & formulated by the committee is not binding on the State as it was not involved in the proceedings & therefore it can’t protect its interest without being heard, & so accordingly the department’s interest was said to be violated & infringed. 


  • The observation of the High Court is in contradiction of other observations made in the same judgment itself:

In this very case, the High Court under Para 21 mentioned that government will come under the umbrella of operational creditors & furthermore stated that the taxes payable by the petitioner shall be covered under the definition of operational debt. 

In the, is case Hon’ble Court took a different route & provided a distinction between direct taxes and indirect taxes. However, it did not give proper reasoning as to how the nature of taxes would impact the definition of operational debt under IBC. The definition of IBC does not make any such distinction and states as long as the debt is a due payable to the Central or State Government under any law for the time being in force, the same shall be called operational debt. The observation made by the High Court runs contrary to the reasoning provided by the IBC, which will not only be a hindrance for future successful resolution applicants but also undermine the very intent of the IBC. 

In Akshay Jhunjhunwala & Ors. Vs. UOI & Others, Calcutta High Court in held that statutory bodies shall come under the definition of operational creditors on account of money receivable by the authority per the statute.

The question as to whether VAT owed to the Tax Department comes within the scope of operational debt has already been previously adjudicated upon by the NCLAT.  National Company Law Appellate Tribunal in the case Pr. Director-General of Income Tax) Vs M/s Synergies Dooray Automotive Ltd. And Ors. have already specifically answered the abovementioned question & it stated that VAT falls within the definition of Operational Debt. High Court while deciding failed to take the judgment of NCLAT into consideration which has dealt with the issue & gave a clear law regarding the same. 

  • What High Court in the case failed to realize is the fact that the amendment made in Section 31(1) of the IBC is a clarificatory statement of Objects and Reasons, the Insolvency and Bankruptcy (Amendment) Bill, 2019 emphatically provide that the amendment in Section 31(1) was introduced to ensure that government or statutory bodies also abide by the resolution plan approved by the NCLT.

Since it is evident that the amendment to Section 31(1) is a clarificatory amendment, it is applicable retrospectively in nature. It is an established & esteemed opinion of law that a clarificatory amendment is ex post facto in nature. In-State Bank of India Vs. V. Ramakrishnan and Anr., Supreme Court while discussing the effect of clarificatory amendments has stated that clarificatory amendments shall be applied retrospectively. 

  • No obligation has been imposed on the resolution professional, corporate debtor & the resolution applicant to inform every operational creditor separately regarding the initiation of the IBC proceedings.

In the case of Swiss Ribbons Pvt. Ltd. & Ors. vs UOI & Ors., Supreme Court has emphatically stated that the proceedings under the IBC like of rem i.e. towards the public at large. 

Fascinatingly, the judges of the High Court the while adjudicating relied on the said Supreme Court judgment, still, managed to have a contrary position than that of the Hon’ble Supreme Court. As already stated the entire purpose of the IBC is to rehabilitate a financially distressed company. The resolution applicant under the IBC takes over the financially distressed company with a clean slate without the baggage/ liabilities of the past. The observation of the High Court runs contrary to the intent of the IBC. If the government is allowed to lay claim pertaining to timeline prior to the approval of the Resolution Plan, no resolution applicant shall come forward to invest in a financially distressed company. And IBC shall become nothing more than a hollow piece of legislation, devoid of its original purpose. 

In Committee of Creditors of Essar Steel Ltd. Vs. Satish Kumar Gupta Supreme Court has stated that all claims must be submitted to the insolvency resolution process in order to ascertain the liability of the corporate debtor. The resolution applicant acquires or takes over the distressed enterprise free of all the previous liabilities & obligations once the provisions & terms of the resolution process are complied with as if it’s a new company with no past. The Hon’ble Supreme Court further observed in the Essar Judgement that if the claims are allowed to be brought up after the completion of the CIRP, the same would amount to “hydra-head popping” with no end to the same. 

It is also fascinating that the High Court mentioned the Essar judgment and in fact, quoted the famous hydra-head analogy and the clean slate rationale of IBC which was beautifully pronounced by Justice Nariman. however, ironically enough, it failed to act on it while dispending judgment. 

Nevertheless, Rajasthan High Court in the judgment relying on section 31 clearly stated that abiding by the terms of the resolution plan approved by the CoC is mandatory for the statutory bodies, & no defense as to lack of being privy to the said proceedings can be claimed by the governmental authority.  The provision was further bolstered because of the statement claimed by the finance minister, whereby he said that government shall not raise any additional claim once the resolution plan is formally sanctioned by the CoC.

The concept was further validated as Supreme Court quashed the SLP filed by the GST Department ratifying the approved resolution plan. 


Overriding nature of the IBC with respect to other laws

Insolvency resolution rules are universally framed to be an exception to generally acknowledged norms of commercial law. The Indian Insolvency and Bankruptcy Code, 2016 is no different & is structured in a way having supremacy over other laws in order to serve the basic purpose. The insolvency laws were framed to revive businesses on the verge of insolvency. If other laws are taken into consideration & given preference when in contravention of the IBC, then that would defeat the very purpose for which IBC was formulated. In order to ensure complete effectiveness of the Code, certain rights & special privileges were attached in the Code like the obstante clause. It ensured that the corporate Insolvency resolution process serves its purpose & is not hindered by the acts of the creditor or any other stakeholder. If at any time the IBC contravenes any other law in force at the time & the law so contravened is given priority, then IBC wouldn’t be able to bring the required result for which it was enacted. A mere glimpse at the code would convey that it is dominantly filled with non-obstante clauses. 

From the very beginning of the Code, the Apex Court has dealt with the position of the Code in relation to other Statutes. Over the course, the Court has reinstated the supremacy of the IBC with respect to other laws & position remains consistent to ensure that the Code serves its true & primal purpose. Over time Court has on various occasions taken the approach that the Code is complete in itself & that it overrides statutes or provisions in statutes that conflict with the Code. Over the years, the Court has, through its judgments, preserving the sanctity of the IBC Code by providing its powers to sustain itself by ensuring that no other law in force is allowed to contravene IBC & by eliminating or overriding any provision which falls under the contravening category. 

In Jain Ink Manufacturing Company Vs. Life Insurance Corporation, it was established that if in case there exists a dispute between general enactment & special enactment, the latter shall be the one given preference & it shall prevail over the general law. In this case, there was a direct conflict between the special law named Public Premises Act(Eviction of Unauthorized Occupants) Act, 1971 & the general Delhi Rent Control Act, 1958 & both the acts were said to have a non-obstante clause present in them. 

IBC is a special law & to the extent of contravention to any other law, it has an overriding effect. It has been set unequivocally that IBC is a complete code in itself & as per section 238 of the IBC it has an overriding effect on other laws in force at the time. 

First case to deal with the overriding powers of IBC

Icici Bank Ltd. vs. Innovative Industries Ltd. 

The question of overriding effect primarily arose in this case whereby the corporate debtor took a term loan, working loan, and external commercial borrowing facilities from ICICI Bank Ltd. (the “financial creditor”). Corporate Debtor committed default on part of a loan on 30th November 2016, with the total outstanding amount being payable being Rs. 1,019,177,034.

ICICI Bank herein initiated insolvency proceedings against the corporate debtor under section 7 of the Code. The corporate debtor in return maintained that it is an aid as per the terms of the MRU Act & so it enjoys certain privileges that come along with it. This provision of the MRU Act in short seeks to provide financial assistance to the company in order to boost its growth in the form of government aid. The timeline of enjoying the benefits of this provision was one year from 22nd July 2016 to 21 July 2017, & it was undertaken to prevent employment loss that would have come along with it had the provisions not been availed of.

So, all the rights, privileges, obligations & liabilities accrued before 22nd July 2016 were held to remain suspended & further any court proceedings pending before any Court of law, Tribunal, or any statutory Adjudicatory was also put a stay on. All the debt that existed against the corporate debtor was suspended for the time being. The corporate Debtor asserted that IBC Code does not have overriding power when it comes to the MRU Act. Nevertheless, the financial creditor claimed that because of the non-obstante clause provided for under section 292 of the IBC Code 2016, it can override provisions of the MRU Act. 

Findings of the NCLT bench 

The primary question raised in this case was if the non-obstante clause exists in both the conflicting laws, then which one would have overriding power over the other one. Herein, Section 238 of the IBC, 2016 contradicted with section 4 of the MRU Act. 

The tribunal in this matter dismissed the case & observed that the Code which is brought into existence on a later stage usually has an overriding effect over the contradicting law, therefore since IBC was enacted at a later stage it would have supremacy over the MRU Act.

Matter before NCLAT

When the corporate debtor was not satisfied by the NCLT’s decision, it filed an appeal to NCLAT against the order. NCLT invalidated all the assertions made by the corporate debtor & admitted the insolvency application filed by ICICI Bank under Section 7 of the Code. 

The impugned judgment was challenged herein by the appellant on the following grounds:

  1. It was argued that the terms of the Maharashtra Relief Undertaking Act, 1958 will prevail over the IBC Code as it was a beneficial portion of the statute. 
  2. The order was delivered by the NCLT without any notice to the corporate debtor & the same is against the principle of rules of natural justice, as postulated u/s 424 of Company Act, 2013. 
  3. It was also pointed that the NCLT being an origination of the Act, is compelled by section 420 of the Act, to ensure that reasonable opportunity is given & party is being heard before arriving at the decision. 

Findings of the NCLAT bench

The most significant issue before NCLAT was whether a notice is required to be given to the corporate debtor for the initiation of the insolvency resolution process & whether IBC, 2016 is binding & has overriding effects on other laws. 

NCLAT hereafter ruled on the essential guidelines to obeyed while admitting an application under section 7 of the Insolvency & Bankruptcy Code, 2016. 

It has been made crystal clear through the judgment that under section 7(5) of the Insolvency Code, the NCLT is mandated to ensure that the following conditions are met with:

  1. A default has been committed by the corporate debtor. As per the Code, it is important that the Adjudicatory Authority look into the allegations of default, ascertain the validity of default & thereafter record satisfaction as to the occurrence of default before admitting the application. 
  2. The application filed by the financial creditor is complete & contains all the proof of default relying on which the application was considered. 
  3. Look into whether the resolution professional that has been proposed by the financial creditor has any disciplinary proceedings pending against him or her.

NCLAT assessed numerous supreme court judgments & cite the Calcutta High Court decision of “Sree Metaliks Ltd. & Anr. in which it was held that:

When an application is received by the NCLT under Section 7 of the Code, it is mandated under section 424 of the Companies Act, 2013 to ascertain the existence of default claimed by the financial creditor, and for this purpose, it has to provide the corporate debtor with a reasonable opportunity to be heard.

Finally, in the innovative industries case, the NCLAT held that it is mandatory for the adjudicatory authority to give notice to the corporate debtor before it admits the case, to look into the substantial value of the existence of default. It was further stated by the court that the code contains a non-obstante clause under the section which overrides all other Acts, thus the provisions of the code shall predominate the MRU Act. 

Thus, it was held by the Supreme Court that since the IBC contains a non-obstante clause which legally prevails over the limited non-obstante clause under section 4 of the Maharashtra Act, which means that the Maharashtra Act would not obstruct the corporate insolvency resolution process under the IBC.

Hence the argument that a notification under the Maharashtra Act kept the debt in a temporary state of suspension was not agreed upon by the Supreme Court, and the court further held that once the effect of the notification ceases, the debt would become due.


The provision that covers the liability of directors of private companies, along with companies in liquidation is Section 178 & 179 of the Income Tax Act, 1961 Act. 

Section 178: This section mandates that the liquidator is not permitted to part with the assets of the corporate debtor, until and unless the tax dues are already set aside and the parting has been stipulated by the assessing officer. This section consists of a non-obstante clause that overrides other concerned laws. Nevertheless, sub-clause 6 of Section 178 has been amended by the legislature, and this amendment subordinated it to the provisions of the IBC. The aftermath of the amendment indicates that when liquidation proceedings are taking place as per the IBC Code, Section 178 has no role to play & income tax authorities will get their arrears as allotted subjects to the provisions contained in IBC.

Section 179:  Although Section 179 in its marginal note still states that “liability of directors of the private company in liquidation”, it was eventually amended in 1975 in order to expand the provision enough for it to include all private companies regardless of their status as under liquidation or otherwise. The amendment declared the directors of private companies regardless of the company being in liquidation or not, jointly & severally liable to pay the unrecovered dues, and the marginal note is untouched even now. even so, it is an established principle of law that marginal notes are relevant only for the sake of reference & cannot restrict the working of a substantive provision. 

Leo Edibles & Fats Ltd. vs. Tax Recovery Officer, Income Tax Department, Hyderabad, Andhra Pradesh High Court

In this case, it was held that the Tax Department is not a secured creditor & thus it cannot claim benefits under s. 52 of the IBC. The Court stated that in the event that the Assessee company is undergoing liquidation under IBC, the Income-Tax Authority will not be entitled to claim priority in the clearance of tax dues under the Income Tax. High Court furthermore went ahead & explained that assets that have been impeded will not create any kind of interest towards the Income Tax Authority as a secured creditor under the IBC. The assets under the order of attachment issued prior to liquidation commencement shall be sold along with other unencumbered assets of the assessee company.  

In Pr. Commissioner of Income Tax v. Monnet Ispat and Energy Ltd, the Supreme Court particularly dealt with the overlap between Income Tax Act, 1961 and the IBC, stating that the incorporation of Section 238 in the Code means that that the IBC will overrule any provision that is not consistent with it, contained within any other law, including the Income Tax Act.

In Dena Bank vs. Bhikhabhai Prabhudas Parekh and Co. & Ors., the Supreme Court stated that secured creditors take precedence over the government debts. 


Before dwelling into the cases, let’s look at one of the prime ingredients under section 88(3) which talks about tax which should have been recovered. Therefore, it is significant to examine if the commencement of recovery proceedings under section 78 of the CGST Act in the capacity of tax dues, particularly tax dues is a necessary condition for evoking Section 88(3) bearing in mind the phrase ‘unrecovered tax’. Thus, the question is if the usage of the term ‘unrecovered tax’ indicates only those tax dues which were not recovered despite the commencement of recovery proceedings or does it also include merely unpaid tax dues.

As far as this question is concerned it is a settled principle of law under section 179 of the Income Tax Act that in order to invoke such provisions, sharp reasons have to be recorded by the officer that despite efforts to recover the arrears the same couldn’t be recovered from the assessee company. Hence, it can be held that for the purpose of section 88(3) of the CGST Act, it does not impede that recovery proceedings should find its inception under section 78 of the CGST Act, to say that tax dues remain uncovered. 

Nevertheless, the tax dues must have become determined & remain unpaid. 

Ritesh Prakash Adatiya v. Deputy Commissioner of State Tax

In this case, Electra Accumulators ltd. suffered huge losses & because of that reached the verge of becoming a distressed company & so a corporate insolvency resolution process was initiated against the company. The company owed the payment of GST tax to the department & so the statutory tax body issued two notices under section 83 of the Central Goods & Services Act, 2017 & put the assets of the corporate debtor under encumbrance. When the resolution professional came to know about such acts & notices of the GST department, it forwarded indication about the commencement of CIRP against the corporate debtor & about the moratorium period that is in process.

RP argued that the process of insolvency resolution has been obstructed because of the actions taken by the department & that he cannot fulfill his duty of controlling the distressed company as provided under section 20 of the IBC. RP further highlighted that it is a responsibility to take over the management of the distressed company & run it in a smooth effective manner & find a viable manner to revive the enterprise & for to fulfill such functions it is imperative that the assets are within the domain of RP so that run & finance the company operations. 

GST department further argued that it has been empowered by the State GST Act & the Central GST Act to recover tax from the defaulter.

Adjudicatory Authority held that the insolvency and bankruptcy code has the capacity to override other laws that are in contravention of the IBC.

In Pr. CIT v. Monnet Ispat and Energy Ltd. Supreme Court established that in case of any inconsistency between the IBC and any other law, the IBC will take precedence and thus prevail over the contravening law.


Jag Mohan Bajaj v. Shivam Fragrances Pvt. Ltd. & Another

This was a landmark case that dealt with the legal conflict between IBC & SEBI. SEBI is said to be a market regulator of the schemes & has absolute supervision on working & recovery in the respective field. So the conflict was between section 28(A) of the SEBI Act which dealt with the recovery of money from a defaulting company by the sale of its movable and immovable assets, & section 14 of IBC regarding moratorium which a has predominating effect on other laws in force. Thus herein it was held that initiation of the resolution process cannot be stalled merely because of the undecided internal clash between directors of the company on charges of oppression & mismanagement. 

Certain statutory rights are preserved for the protection of creditors & such legal entitlements cannot be taken away just because of an undecided case of oppression & mismanagement under sections 241 & 242 of the Companies Act, 2013. 

The statutory rights of financial creditors cannot be compromised due to pendency under oppression & mismanagement cases under Section 241 & 242 of the Companies Act, 2013. 

Facts of the case were such that HBN Diaries was operating a collective Investment Scheme & extracted around Rs. 1,136 crores from investors & duped them on the pretense of providing a handful gain.

For the recovery of the said amount, SEBI attached the properties belonging to HBN Diaries in order to reverse the transactions & return the dues to depositors. Due to the delay that followed the recovery process, some investors in order to be on a safer side approached NCLT for the initiation of insolvency proceedings against HBN Diaries. 

The application filed by NCLT was acknowledged & accepted, after checking its validity & thereafter Court hired a resolution professional to assess the financial conditions of the distressed company. The NCLT then ordered the statutory body of SEBI to transfer the assets of the distressed company brought to Resolution Professional. The assets were brought under encumbrance by the SEBI & the tribunal by its order mandated the transfer of such assets over to the Resolution Professional. So SEBI contested the said order & argued that section 238 would come into the picture when inconsistency arises between IBC provisions and SEBI Act. But in this particular scenario the collective investment scheme has no conflict or contradiction between both & investors herein are just holders of their units and perfectly fit in the term financial creditors.

While opposing the abovementioned argument by SBI, the resolution professional stated that the object of the Code is not just to save the interest of numerous stakeholders surrounding the company, but to protect the life of the company as well. Finally, after due consideration of the provisions, NCLT held that section 11 & 11B of SEBI read with Regulations 65 of CIS Regulations, 1999 clashes, and conflicts with the IBC, & IBC provision overrides the SEBI Act which was again upheld by NCLAT.     

Prevention of Money Laundering Act, 2002 

SREI Infrastructure Finance Ltd. Vs. Sterling SEZ and Infrastructure Ltd.

An application under section 60(5) of the Code was instituted by the Resolution Professional of Sterling SEZ & Infrastructure Ltd. ie the Corporate Debtor, appealing to the Adjudicatory Authority to instruct the Enforcement Directorate to release all the attached & encumbered assets of the corporate debtor and transfer the same in possession of resolution professional. 

The statutory authority of the enforcement Directorate tentatively took control over the properties of the corporate debtor.  

The question that arises in the case is that whether provisions of IBC would override the provisions of the PMLA, 2002 pondering the fact that in the PMLA Act, 2002 non-obstante clause is inserted under section 71. 

The adjudicatory Authority delved into the intention of both the statutes & thereafter observed that:

  • The PMLA Act was enacted with the intent to serve justice to the aggrieved party, bring him back to the original position & ensure repayment of the amount by disposing of the assets of the offender.

It was further observed that criminal proceedings initiated under the PMLA would be more time-consuming as compared to the corporate resolution process under the IBC. 

  • Section 238 of the IBC was enacted later as compared to section 71 of the PMLA which was introduced before, as so IBC being the later legislation would override section 71 of the PMLA Act. IBC offers solutions & protects the interest of both the corporate debtor & creditor. 
  • The Tribunal relying on 14(1)(a) stated that the attachment order is nullity & non-est in law & will not carry any binding force. They observed that legal proceeding is barred in the moratorium period & so quashed the order which was in direct contradiction to the provision of the moratorium. 
  • Section 63 of the Code ensures that national company law tribunal’s jurisdiction is respected by other Courts & so this provision bars any Civil Court or authority to admit any case or deal with that is pending before the company law tribunal. 

Because the suit pending before the PMLA is civil in nature, the tribunal does not the jurisdiction to attach properties of the corporate debtor or put it under encumbrance while the resolution process is undergoing. 

The tribunal after due consideration held that the suggestion of the amicus curiae to appeal against the attachment order before adjudicatory authority under PMLA would further delay the resolution process under the IBC. 

The faster route should have been opted for whereby proceedings are conducted expeditiously. The tribunal held the act of attaching properties by the statutory body as a nullity by relying on section 14 & section 238 of the Code & furthermore it ordered the sub Registry to provide Resolution professional with the original sale deeds. 

Restrictions placed

The courts have also been abrupt to place limitations on the boundaries of the Code. In the matter of B.K. Educational Services Private Limited v Parag Gupta & Associates, the Apex Court stated if the overriding clause of the Code is said to overtake provisions of the Limitations Act, 1963 that would lead to “baby being thrown out with the bathwater”.

Under IBC, applications can be filed under different provisions & so the point of contention, in this case, was the f time duration provision of the limitations Act, 1963 would govern the resolution process initiated under section 7&/or 9 of the code. Appellate Authority in the case held that the Limitation Act, 1963 is not applicable. 

But in appeal, it was realized by the Court that suits filed under sections 7 & 9 of the Code have always been subjected to the provisions of the Limitations Act. Whenever default is committed by any person, the aggrieved party can avail of the right of right to sue under article 137 of the Limitations Act.  Article 137 of the Limitations Act, 1963 protects the right of a person & allows him/her to initiate proceedings against defaulter whenever the right to sue arises. However, the said provision put a curb on the period during which such application has to be filed i.e. within three years of the default committed. The only exception to such provision is as per the extension period provided under section 5 of the Limitation Act, 1963. It was established by the Court that an application filed under section 7 & 9 shall be subjected to the provisions of the Limitation Act, 1963. 

In Municipal Corporation of Greater Mumbai v Abhilash Lal & Ors., whereby the overriding provision of the Code wasn’t given supremacy & MCGM’s right was protected even though it was in contradiction with the IBC’s overriding provision. It was pronounced by the Court that 238 of the Code will not prevail over a public body’s right. The public body is entrusted with the function to manage & supervise the public properties & they it is own them how do they want to manage such properties. In this case, it was held that the Code’s superseding power cannot be enforced over the assets of a third party.  


The Insolvency & Bankruptcy Code, 2016 has created a corporate revolution in the Indian economy, which was witnessing companies defaulting on payments worth thousands of crores of rupees. The fresh corporate insolvency resolution which is sternly a time-bound process has guaranteed that companies do not experience corporate death due to liquidation. 

As per the amendment of the Code, the Code aimed to secure maximization of the asset value & with the inception of the Code, the whole corporate insolvency procedure was fastened in order to ensure stable recovery for the distressed company. One of the reasons for the company’s value to deteriorate could have been ineffective management & so during the resolution process control over the corporate debtor’s assets is handed over to the Resolution professional who ensures quick recovery and stability of the company. To ensure that other laws don’t act as a hindrance to the insolvency resolution process, the overriding feature of the Act should be sustained, or else the Act won’t be able to serve its purpose & revive companies on the verge of bankruptcy.

However, at the same time, the creditor’s financial position should also be reverted to the time before the money was credited, so that the right of the creditor is not infringed upon for the sake of the company. The right of the creditor and the company should go hand in hand & a solution should be arrived at while keeping that in mind. 


  • Section 31 of the Code can be construed in different ways, & so there is no clarity with regard to the said provision. It is giving rise to various interpretations regarding the binding power of the resolution plan on stakeholders who were not made cognizant of and involved in the resolution process, so thereby it is crucial that legislature finally takes into consideration & give necessary clarifications so as to avoid future problems arising on the same subject matter. High Courts in this regard have taken conflicting stance so rules & guidelines should be issued regarding the same to provide clarity. 
  • Section 32A of the Code states that the corporate debtor shall not be arraigned for the offense committed prior to the commencement of the corporate insolvency resolution process. Even though immunity is provided under this section to the corporate debtor, the succeeding issues remain unanswered:
  • Protection to the successful bidder or resolution applicant who takes over the complete insolvent enterprise on a going concern basis, or in accordance with a scheme of compromise.
  • Protection to the successful bidder or resolution applicant purchasing assets of the corporate debtor during the insolvency resolution process. 
  • The scope of protection provided to the bidder is limited to the offense committed, preceding the initiation of the insolvency process. Hence an explanation is needed as to whether such protection is provided in a matter of civil nature also. 
  • Further, one more issue that needs deliberation upon is whether governmental bodies that may have dues pending against the distressed comprises within the definition of operational creditors of the Code. 

This would allow authorities to claim the proceeds due to them in the resolution process and clearly bring them within the fold of the Code and at the same balance the policy objectives of different legislations with that of the Code. 

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